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Alan Kohler: What’s to be done about post-JobKeeper Cairns?

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Cairns is about to become a ghost town, at best a retirement village, and its fate is a test case for whether anyone gets left behind while the rest of us enjoy a booming recovery from the pandemic recession.

The far north Queensland town, gateway to the reef and the rainforest, is being kept alive by JobKeeper at the moment, but that ends on March 28.

Businesses in Cairns have already started giving staff their notice in preparation for that, and when the axe actually falls, the whole town will basically close.

Any of its 150,000 people not on a government pension will have to leave.

That’s because international tourism – Cairns’ only industry – has fallen 99 per cent, by government decree.

That is obviously hurting dozens of other places around the country, but Cairns is a special basket case because it’s too far to drive to and since there’s not much flying going on these days, it isn’t getting any domestic tourism either.

As the chairman of Tourism Tropical North Queensland, Ken Chapman, told me this week: “Cairns is basically an international destination within Australia.”

The question is not really whether to save Cairns and other places that rely on international tourism – of course they must be saved – but how to do it right.

The problem is that for them this is neither a short-term nor permanent closure; it’s something in between.

When the car industry closed, those workers had to find other work because it was never coming back.

We can argue about whether the industry should have been propped up, but it just wasn’t viable when the currency went to parity with the US dollar, driving down import prices.

The JobKeeper package of 2020 was meant as temporary employment support for businesses affected by last year’s lockdowns, like restaurants. It was brilliant policy, fast and effective, and now apart from Victoria’s encore this week the lockdowns are over.

But international tourists won’t be back for 12 months, and even then the return of tourism will be slow and unpredictable, and will depend on vaccination rates elsewhere.

Would two more years of support for businesses that serve international tourists be enough? Probably, but it’s hard to know.

The bean counters at Treasury are taking a hard line on JobKeeper, as Treasurer Josh Frydenberg revealed this week: “What Treasury have said in their review of JobKeeper is that if you leave it in when the economy strengthens as is occurring right now, it has a number of perverse or adverse incentives. It prevents the allocation of workers to more and better roles across the economy. It is expected to end in March, but what we saw in today’s numbers are very encouraging signs.”

It’s true that the numbers are encouraging: People relying on JobKeeper fell by 56 per cent in December, with 2.13 million employees “successfully graduating” from it in three months.

But that still leaves 1.54 million people relying on it, or 12 per cent of the workforce, and 22,000 of them in Cairns, which is about a third of the town’s workforce.

What’s more, the rest of the town’s workers – doctors, shopkeepers, taxi drivers – depend on those 22,000 staying in town, with money to spend.

One solution would be to keep JobKeeper going, but make businesses update their revenue figures monthly, so only those that need it still get it.

But a lot of businesses in all industries and regions do need to close and as Treasury says it would be wrong to keep zombie firms alive indefinitely. But if a business is in a two-year coma, do we turn off life support?

Dr Chapman owns the Skyrail Rainforest Cableway, which is currently running two days a week with very few customers. He’s keeping his 100 staff on with JobKeeper; when it finishes he’ll have to let them go and close the business.

Dr Chapman’s business is pretty much a zombie now, but when international tourism returns, it will be fine.

Should his 100 staff be paid by taxpayers to do little for two years, or should they – and Ken – go do something else for a while?

That seems to be what Treasury wants, but do what? And where?

If they go to Sydney or Melbourne to join the construction boom and build houses or do renovations, even if they could, Cairns would become a ghost town, or a retirement village.

To keep the town alive, tourism workers have to be paid to do something else in Cairns, even if there’s nothing there that’s commercially viable.

It seems to me, that means reviving a version of the Whitlam government’s RED scheme, which stands for Regional Employment Development, and was launched after the 1972-73 recession, lasting for two years until Malcolm Fraser killed it.

Workers were paid the minimum wage by government to build roads, youth centres, playing fields, swimming pools, senior citizens centres, surf lifesaving clubs and so on. The scheme was largely, but not entirely, funded by the Commonwealth, but run by state governments and local councils, who decided what infrastructure was needed.

By February 1975, 24,300 jobs had been created in 2923 projects, at a cost of $77.3 million.

Obviously, those sorts of numbers would be a drop in the 2021 bucket, so it would need to be bigger to replace JobKeeper in tourism towns.

But surely it’s better to pay the minimum wage ($758 per week) for people to do something useful than to keep paying $500 a week for them to turn up each day and play Solitaire on the computer at a dead company walking.

Alan Kohler writes for The New Daily twice a week. He is editor in chief of Eureka Report and finance presenter on ABC News

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‘Mountain of equity’: Millions of home owners could save thousands

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If you’ve become a home owner in the past five years it might be worth getting an appraisal – you’re probably sitting on a “mountain of equity”.

As we’re all aware, house prices have soared lately. And while that’s bad news for rapidly worsening inequality, it also means those that do own a home could save money on their mortgages, upgrade their properties or even borrow to finance that renovation they’ve been wanting to get done.

Refinancing could save you thousands in interest repayments a year.

You’ll be in a particularly strong position if you’ve also been able to keep up with your mortgage repayments during COVID, because you now own a larger proportion of a house that has rapidly increased in value lately.

It’s a virtuous cycle that’s making the gap between the haves and have-nots much larger in Australia by pushing up property prices even faster.

Owner occupiers have been the keystone of the latest property boom, with most being existing owners upgrading their homes.

Who could blame them? RateCity research published this week finds an owner occupier in Sydney who bought at the median price in 2019 with a 20 per cent deposit has now seen their wealth increase by $402,000.

Apply the same conditions to Melbourne and wealth has risen $192,000.

This assumes property owners kept up with their mortgage repayments, which the majority of home owners have done while working from home and taking part in a $300 billion government cash splash during COVID.

“Millions of homeowners are sitting on a growing mountain of equity, some without even realising it,” RateCity research director Sally Tindall said.

How to benefit

If you’re in this situation, getting the value of your home appraised could be the first step to a better home loan or moving up the property ladder.

“If you’ve owned your own home for at least a couple of years, and have been diligent about paying down your debt, you could refinance to a lower rate,” Ms Tindall said.

“Lots of lenders offer interest rate discounts to new customers with loan-to-value ratios below 70 per cent, including ‘big four’ banks CBA and Westpac.”

What’s a loan-to-value ratio? Put simply, it’s the difference between the size of your home loan and the value of your property.

So, as an example, if your home is worth $1 million and your mortgage is $100,000 you have a loan-to-value ratio (LVR) of 10 per cent.

The lower your LVR the easier it will be to refinance your loan at a lower interest rate or borrow more to purchase a higher-value property.

First home buyers might also be able to remove the guarantor on their loan sooner than they thought because of rapidly increasing prices.

About 58 per cent of the lowest variable interest rates available are open only to those with deposits of 30 per cent or more, RateCity said.

In other words, rising property prices may have moved you into the club of home owners that can achieve lower interest rates on their mortgages.

A median Sydney property purchased on an 80 per cent LVR in 2019 could now be refinanced on an LVR as low as 55 per cent.

If those conditions are applied in Melbourne, LVR falls to 63 per cent.

 

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Here’s why Australians won’t be hit by the soaring gas prices we’re seeing overseas

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Australians have dodged the bullet of skyrocketing gas prices currently hitting consumers in Europe and Asia.

While prices in the major gas hubs of those regions have spiralled up by a factor of five, in Australia a brief spike eased in September.

That means local consumers won’t be facing big jumps in household bills into next year.

Australian gas prices jumped in June and July after outages at coal-fired power plants in Victoria and Queensland boosted demand for gas generation.

That spike was short lived due to warm weather in some states and lockdowns in Victoria and NSW eroding demand, according to research by EnergyQuest.

“You’ve had warmer weather though the major capitals, the effects of the lockdowns and increased renewables, which reduced the demand for gas generation,” EnergyQuest CEO Graeme Bethune said.

Power prices fell

Those factors have also fed into power prices, with electricity costs falling in September in comparison with a year earlier.

What is interesting about the table above is that not only did average power prices drop, but the peak price charged by generators when power is in short supply also dropped.

That was despite the ongoing problems at the Victorian and Queensland power generators.

Part of the explanation is that there is increased output from renewables as rooftop solar grew, and new wind and solar generation came online.

That meant that gas power was called on less often to meet peak demand, which in turn held down power prices.

The inverse was true in Europe, where a 20 per cent fall in wind output over recent months helped run down gas supplies, contributing to the price spike, Mr Bethune said.

The future of power prices in part will depend on renewable output.

“If the wind blows strongly and there is plenty of sunshine across eastern Australia then it will keep pressure off gas prices,” Mr Bethune said.

The influence of renewables across the system in the last year is evident in this chart on power supplies.

Although wind has been stable in terms of its contribution to the power equation, outputs from hydro, solar farms and rooftop solar have risen.

The result is that coal has been pushed down from 65 per cent of power production to a record low of 60 per cent and that should help hold down both gas and electricity costs.

Even if offshore gas prices continue to spike Australian gas producers would not be in a position to push up local prices to match it.

“A lot of the export contracts for LNG [liquified natural gas] out of Queensland are set against the oil price and that has not risen by anywhere near the amount gas had,” Mr Bethune said.

“Then you have the federal government which has made clear to LNG exporters that they need to make enough gas available to the local market.

“They’re doing that regardless of the fact that they could make more money in the export market.”

Domestic users are supplied from long term contracts that cannot be easily changed when gas prices rise, so that would be another brake on prices.

However, while it is comforting to know local gas prices won’t spike to offshore levels, Australian consumers are still not getting as good a deal on prices as they should be, according to Bruce Mountain, Director of Victoria Energy Policy Centre at Victoria University.

“For small customers the gas price is not the big deal. The biggest things are the operation of the retail market and the costs levied by the owners of the gas-distribution pipes,” Professor Mountain said.

“Gas supply has been very profitable for the big gas companies.”

That was in part because consumers don’t bargain-hunt for retailers, and the charges levied to use the pipes and wires of the energy distributors are too high.

Regulators set these charges and could crack down on them but don’t, Professor Mountain said.

Since privatisation margins earned in energy distribution have increased dramatically.

Power distributor AusNet Services, under takeover offers from two groups, “is currently making a margin of 19 per cent – they’re far too profitable,” Professor Mountain said.

When power was distributed by [the state-owned] SECV there was a margin of 3 per cent on sales, Professor Mountain said.

Household power bills could be 15 per cent cheaper if the distribution businesses were less profitable, he said, with the situation similar for the gas sector.

But the move away from gas as a household fuel, necessary to reduce greenhouse emissions, will help deliver cheaper energy.

“Devices that use gas [for household tasks] are much less efficient that those using electricity,” Professor Mountain said.

The post Here’s why Australians won’t be hit by the soaring gas prices we’re seeing overseas appeared first on The New Daily.

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Scott Morrison talked Glasgow, China with News Corp boss over ‘after-dinner drinks’

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Prime Minister Scott Morrison discussed the Glasgow climate summit, China and the Biden administration with News Corp executives in New York last month, the company’s global boss has told a Senate inquiry.

Appearing before a Senate probe into media diversity via video link on Friday, News Corp’s global chief executive Robert Thomson revealed he spoke with the PM about international affairs over “after-dinner drinks”.

Mr Morrison was in New York to represent Australia at United Nations’ talks.

Mr Thomson told the inquiry on Friday he presumed the PM wanted to meet because he knew “many” world leaders attending the UN summit.

“I had presumed he wanted some insight about some foreign policy matters,” Mr Thomson said.

Mr Thomson confirmed Mr Morrison didn’t meet News chairman Rupert Murdoch while in New York. He also claimed there was no discussion of the looming federal election.

Mr Thomson said the Glasgow summit came up “in passing” between the pair, but they didn’t talk about News Corp’s planned 16-page net-zero spread across its Australian publications, which has ignited a firestorm of criticism Down Under.

The main topics of discussion were Japan, China, Afghanistan and the “contours” of the Biden administration, Mr Thomson told the inquiry.

“The Prime Minister and I don’t necessarily agree on China,” he said.

Mr Thomson (on TV) said he presumed the PM wanted foreign policy insights. Photo: AAP

Mr Thomson was also asked by Labor senator Kim Carr about whether News Corp directed local editors to take positions on political issues.

Mr Thomson said News Corp’s New York executives had no involvement in recent features on net-zero carbon emissions and that its Australian editors weren’t told from the US what to write.

But he said the company did expect editors to operate within a certain philosophical framework.

“As a company, we have a philosophy about certain issues,” he said.

“We have a philosophy about individual freedom, about the role of the market, about the size of government.”

Mr Thomson said that – as a former editor – he had “discussions” with News Corp’s editors, but that they had a “large amount of local autonomy”.

Senator Carr and the inquiry’s chair, Greens senator Sarah Hanson-Young, grilled the News Corp executive on the publisher’s track record on climate, accusing its Australian papers of platforming climate deniers for more than a decade.

But Mr Thomson said News Corp has been consistent on climate dating as far back as 2004, citing Mr Murdoch’s 2006 statement that the “planet deserves the benefit of the doubt”.

News Corp Australia has just finished a two-week campaign of climate coverage that included its major Australian mastheads running 16-page spreads about net-zero emissions.

The series had many critics, who argued News Corp had a long-held editorial hostility on climate action, including attacks on past Labor government policies targeting emission reduction efforts.

The post Scott Morrison talked Glasgow, China with News Corp boss over ‘after-dinner drinks’ appeared first on The New Daily.

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